The chief executive officer of Hamilton-based National Steel Car is facing 10 counts of securities fraud in Alabama after regulators alleged he defrauded a local pension fund over a deal to build a new manufacturing plant in the state.
Gregory Aziz was arrested last week at Chicago Midway International Airport when he entered the United States to attend an event, and was turned over to police to be transported to Alabama. He was still in custody as of Tuesday.
The Alabama Securities Commission said in a release the fraud charges carry a maximum penalty of 10 years in prison.
Company spokesman John Crean said lawyers are still reviewing the indictment and have no comment on the allegations, but said Mr. Aziz is co-operating with the authorities.
"Obviously it's a tough time for Mr. Aziz and his family for sure," he said. "I know they working co-operatively with the Alabama Securities Commission and are anxious to resolve this matter in a way that is best to all parties."
Mr. Crean said the case is not impacting daily operations of National Steel Car, which is a private company substantially owned by Mr. Aziz. He said it is "business as usual" at the company.
"They are hoping to resolve this as quickly as possible," Mr. Crean said.
Mr. Aziz is accused of making false statements and underestimating costs when soliciting a 2007 loan from the Retirement Systems of Alabama (RSA), which manages pension funds for state employees, to convince the fund to finance the construction of a new rail car manufacturing plant.
According to an indictment filed in the Circuit Court of Colbert County, Mr. Aziz allegedly initially told the pension fund the core of the building for the plant would cost $195-million to construct, even though he had already received a preliminary construction estimate of $315-million. He allegedly claimed the entire project would cost $296-million including equipment, which prosecutors allege was a huge understatement of the known costs.
As the project costs soared, Mr. Aziz told the pension fund in August, 2008, that the construction was over budget by $50-million, even though budgets allegedly showed it was $400-million over budget at the time. In November that year, he finally revealed he needed an additional $400-million to complete the project and was "not sure what happened" to cause such massive cost overruns. By the end of 2008, the total cost had climbed to over $700-million.
In early 2009, the pension fund agreed to provide more funding to bring its total loan commitment to $625-million in exchange for an ownership stake in the project. Within months, however, the RSA began to learn about misrepresentations and took steps to take control of the entire project.
Regulators alleged Mr. Aziz and his brother, Warren Aziz, who was hired as project manager, both misled the RSA throughout the term of the contract.
"The Azizs never disclosed to RSA that they had known all along that the cost of the project would far exceed the budget given to RSA and it was a part of the Azizs' fraudulent plan to not reveal this fact until they had drawn and spent substantially all of the original loan proceeds," the indictment alleges.
"As the Azizs had planned, once most of the loan proceeds were spent, they reported and claimed that there had been unknown and unexpected and unavoidable cost overruns that guaranteed a need for more money from RSA to complete the project."
The indictment alleges Mr. Aziz "repeatedly falsely" told Alabama's then-governor that the project was on time and on budget between 2007 and the end of 2008.
The indictment alleges a former chief financial officer of National Steel Car told Mr. Aziz the project could never be built for the amount being claimed, and would be economically unviable if it could. He allegedly quit working at the company when he learned the project was going to proceed, the indictment says.
According to U.S. media reports, the RSA took control of the plant in 2010 and has tried to find new tenants to use some of the property.